US outbound screening plan covers up to 6% of recent China deals – analysis

• Relevant sectors play increasing role in US-China acquisitions
• Hong Kong covered by rules, accounts for over 20% of deals

The outbound investment screening mechanism announced by US President Joe Biden last week covers up to 6% of recent US acquisitions or stake investments in Chinese companies, according to an analysis by this news service.

Of 185 US acquisitions or investments in Chinese companies announced since 2020, 11 involved companies active in semiconductors, microelectronics, artificial intelligence (AI) or quantum computing, according to Dealogic data.

Combined, these deals were worth USD 6.7bn and represented an even larger 16% share of the US’ total USD 40.8bn M&A investment into China over that period, according to available data.

The share of deals in these subsectors has increased slightly over the last few years, as they accounted for just over 4% of US-China acquisitions between 2013 and 2019, according to the deal data.

On 9 August, Biden signed an executive order (EO) to establish screening of outbound investments by US companies into China in the semiconductors and microelectronics, quantum information technologies, and AI sectors. The order also covers Hong Kong and Macao.

The Department of the Treasury at the same time is seeking public comment on the implementation of the EO, which is still open for another five weeks. This consultation includes questions on which technologies will be covered and how a ‘US person’ is identified, as well as on the screening procedure.

This news service analysed transaction data going back to 2013 that covers acquisitions by American firms of target companies in China, Hong Kong or Macao whose businesses might be covered by the executive order. The exact scope of the business activities that will be subject to notification and screening is yet to be determined, so the analysis is based on an estimate.

The wider computer sector – which includes the covered industries – is by far the most important for US M&A into China, accounting for nearly one-third of the transactions since 2013. The next closest sector, healthcare, accounts for 15% of acquisitions. The total deal value for computer industry transactions of USD 26.7bn was 32% of all deal value since 2013.

Biden includes Hong Kong

The EO besides mainland China also includes Hong Kong and Macao, which a few years ago would perhaps not have been the case.

The Special Administrative Regions play an important role for transactions involving a US buyer, accounting for a fifth of all such transactions in the past ten years. Since 2020, that share has gone up to 26%.